Chapter 3 Income and Taxes Review (Money Matters)

Unearned income includes dividends, capital gains, interest, and rent income. Describe each type of unearned income.

-Examples of unearned income include rent income, dividends, and capital gains. Rent income is payments received from rental property. -Dividends are a portion of a corporation's earnings paid to its stockholders. -A capital gain results when property, such as corporate stock, is sold for an amount greater than its cost. -As defined earlier, interest earned on savings accounts, investments, and other bank accounts is money paid for the use of money.

Explain how to prepare a Form 1040.

-The first step to completing a tax return is to fill in the personal information. Next, income from wages, salaries, and tips should be recorded along with taxable interest and unemployment compensation. -Federal income tax that has been withheld and recorded on the Form W-2 should then be entered on the form. -If the amount of taxes already paid is more than the amount owed, the taxpayer will receive a refund. After completing these sections of the 1040EZ form, it is important to remember to sign the document. A return must always be signed before it can be processed.

Eligible workers who work more than _____ hours per week must receive overtime pay at least _____ times their regular hourly rate.

40, 1.5

At what age do workers become eligible for full retirement benefits from Social Security?

67

Earned income includes wages and salaries. Describe each. What are other examples of other forms of earned income?

Earned income includes wages, salaries, commissions, tips, bonuses and self-employment income. A wage is payment for work that is usually calculated on an hourly, daily, or piecework basis. Salary is a fixed payment for work and is expressed as an annual figure. A commission is income paid as a percentage of sales made by a salesperson. A tip is money paid for service beyond what is required. A bonus is money added to an employee's base pay. It is usually a reward for performance. Self employment income is income earned by self-employed people who work for themselves

Describe examples of information needed to file an income tax return.

Examples of information needed to file an income tax return are personal information, marital status, all sources of income, copies of the previous year's tax return, records of interest paid on loans, and records of any charitable expenses.

Which tax form is the simplest form to use?

Form 1040EZ

The Employee's Withholding Allowance Certificate is a federal tax form that is also called the _____.

Form W-4

Describe common types of employee benefits

Health insurance, dental insurance, sick leave, vacation time, flexible work schedule, retirement plan, childcare, profit-sharing program, and professional development opportunities are all examples of common employee benefits.

What federal program pays for certain health-care expenses for older citizens and others with disabilities?

Medicare

A(n) _____ is a report containing information used to calculate taxes owed by the taxpayer.

a. tax return

Amount of earnings not subject to income taxes.

allowance

Income paid as a percentage of sales made by salesperson is a _____.

commission

What is it called when the federal government spends more money than it collects?

deficit spending

4. Amount a taxpayer can claim for each person who is dependent on that person's income.

exemption

Identify common payroll deductions, and explain how net pay is determined.

f. Common payroll deductions include income taxes, Social Security taxes, and Medicare taxes. Net pay is gross pay minus these deductions.

Total income before payroll deductions

gross pay

Tax levied on one person or entity, but paid by another.

indirect tax

Which of the following is not a benefit category provided by Social Security?

low-income benefits

Income earned by workers who are self-employed is called _____.

profit

Tax that imposes the same tax rate on all individuals or entities regardless of differences in income or ability to pay.

proportional tax

Which type of tax has the effect of imposing a higher tax rate on those with lower incomes?

regressive

Which of the following is not a form of earned income?

rental income

The _____ deduction is a fixed amount that may be deducted from adjusted gross income, which is set by law and will vary according to filing status.

standard

Government-approved reduction in gross income.

tax adjustment

Amount that is subtracted from the taxes an individual owes.

tax credit

The amount of total tax owed on income for the year is known as the _____.

tax liability

What is the amount on which taxes are calculated?

taxable income

Money paid for service beyond what is required.

tip

Payment made to an individual from the federal government through various social benefit programs.

transfer payment

Amount of time an individual spends at work compared to the amount of time spent in his or her personal life.

work-life balance